Texas House Unanimously Rebuffs GASB Standard

May 14, 2007 (PLANSPONSOR.com) - Texas took another step toward asserting its independence from national accounting standards.

Against the advice of the nation’s top accounting firms, academic experts and some of Wall Street’s big names, The Texas House last week unanimously approved legislation that rejects the application of the Governmental Accounting Standards Board (GASB)’s nationwide accounting rule on the long-term costs of benefits to retired government workers.

The measure, House Bill 2365, allows governmental entities to follow the rule if they choose to. If they don’t, the bill allows governments to include a laundry list of information about their costs of retiree benefits (see  Lone Star State Trying to Opt Out of GASB 45 ).  If the Senate follows suit, Texas would become the first state to say its governmental entities do not have to follow the rule issued by GASB, according to the American-Statesman.

Credit Rating Impact?

However, accounting experts and credit-rating agencies have said the legislation, if signed into law, could damage the state’s credit ratings and raise its cost of borrowing money.

Texas legislators’ campaign against the rule, an effort joined by Comptroller Susan Combs, has triggered a national debate about transparency in government accounting and concern over how the rule will affect state budgets and benefits for retirees.   According to the American-Statesman report, Representative Vicki Truitt said Texas shouldn’t have to follow the rule because the state appropriates money for retiree benefits every two years and doesn’t promise the benefits.

Truitt said the rule, which requires states to list the retirement costs as a liability, violates the state constitution because it commits future Legislatures to continuing to fund the benefits.   And, Truitt said, if the state has to start pre-funding the benefits, lawmakers might decide instead to cut benefits.

The rule, which GASB adopted in 2004, is intended to inform the public and policymakers how much a state or local government will have to pay to provide health care and other benefits to current and future retired workers.   The rule also requires governments to disclose how they plan to pay the tab, although it doesn’t require money to be set aside (see  GASB Hands Down Nonpension Benefit Accounting Guidance) .

The Legislative Budget Board, which analyzes bills, said if Texas financial statements do not comply with the accounting rule, it “would lead to adverse opinions by outside auditors,” according to the report.